Viewpoint: 11th Circuit Ruling Reminds Insurers to Tread Carefully When Settling Multiple Claims

Insurers handling claims in Florida often feel like they are fighting an uphill battle to avoid bad faith lawsuits arising from the alleged failure of an insurer to act in good faith when settling a liability claim against the insured. This fight is even more daunting when the claims involve multiple, competing claimants seeking to recover damages against the insured in amounts in exceess of the insurer’s policy limits. The 11th Circuit of Appeal’s recent decision in Aldana v. Progressive provides another reminder of the obstacles and potential pitfalls that can confront insurers faced with multiple claims against its insured, and makes clear that insurers must revisit and potentially change their settlement strategy, if doing so is in the insured’s best interest.

Under Florida law, an insurer handling claims made against its insured has “a duty to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business.” (Boston Old Colony Insurance Co. v. Gutierrez). That duty requires the insurer to advise the insured of settlement opportunities and the probable outcome of litigation, to warn of the possibility of an excess judgment, and to advise the insured of any steps it might take to avoid an excess judgment. The insurer must also “investigate the facts, give fair consideration to a settlement offer that is not unreasonable under the facts, and settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so.” In a case where liability is clear and injuries are so serious that an excess judgment against the insured is likely, the insurer has an affirmative duty to initiate settlement negotiations. (Harvey v. GEICO Gen. Ins. Co.) However, these obligations are not “a mere checklist” which, once checked off, protect an insurer from bad faith liability. Instead, the key inquiry in a bad faith case is “whether the insurer diligently, and with the same haste and precision as if it were in the insured’s shoes, worked on the insured’s behalf to avoid an excess judgment.” Whether the insurer acted in good faith with regard for the interests of the insured is a question to be resolved by the jury.

When faced with multiple claims against the insured arising from a single accident, the insurer’s duty of good faith also requires that it: (1) fully investigate all claims to determine how best to limit the insured’s exposure; (2) attempt to settle as many claims as possible within the policy limits; and (3) avoid indiscriminately settling claims where the insured’s excess liability might be minimized through settlement. (Farinas v. Fla. Farm. Bureau Gen. Ins. Co.). The insurer must also keep the insured informed of the claims resolution process. After a full investigation and communication with the insured, the insurer can move forward with a settlement strategy that involves settling select claims, to the exclusion of others, so long as the strategy is reasonable. Whether the insurer has met its good faith duty and undertaken a reasonable claims settlement strategy is a question to be resolved by the jury. Reasonableness considerations include the timing of the settlements, whether the insurer’s rejection of a global settlement strategy or other settlement options was in the insured’s best interest, whether the insurer adequately investigated the facts of all of the claims, and whether the insurer properly rejected advice and settlement strategies proposed by its legal counsel and employees.

Because both the insurer and the insured benefit when all of the claims against the insured are settled within policy limits, an insurer can pursue a global settlement strategy in good faith. For example, in Mesa v. Clarendon Nat’l Ins. Co., the insurer’s investigation quickly revealed that its insured was liable for a multi-vehicle accident and that the potential damages recoverable against the insured were likely to exceed the limited coverage. Immediately after learning of the accident, the insurer retained a third-party administrator to adjust the claims and retained an attorney to identify potential claimants and assist the claimants in reaching a global settlement. Shortly thereafter, the insurer advised all claimants that it would tender its policy limits to settle the claims globally and requested a response from claimants on this global settlement offer. While two of the three claimants agreed to a global settlement, unbeknownst to the insurer, the third claimant did not agree and commenced a lawsuit against the insured that later resulted in an excess verdict. The claimant who commenced the lawsuit against the insured then sued the insurer in Florida state court for bad faith to recover the entire amount of the verdict. The insurer removed the case to Florida federal court and the district court, applying Florida substantive law, granted the insurer summary judgment, concluding that no reasonable juror could infer that the insurer acted in bad faith as a matter of law. The 11th Circuit affirmed on appeal.

The 11th Circuit’s decision in Mesa focused on the speed of the insurer’s claim investigation and how quickly the insurer tendered its policy limits. The 11th Circuit further noted that the insurer was never notified that the claimant would not agree to participate in a global settlement before that claimant filed a lawsuit against the insured, and thus, it had good reason to believe the parties were working towards a global settlement. The court also rejected the argument that the insurer was required to immediately tender its limits to the claimant, and found that because there were multiple claimants, the insurer’s decision “to pursue a global settlement was consistent with its duty of good faith under Florida law.” Notably, although the 11th Circuit acknowledged that the insurer “may have been negligent” in failing to keep its insured advised of settlement opportunities, the probable outcome of litigation, and the possibility of an excess judgment, it ruled that “such negligence was not the cause of the excess judgment [against the insured], and is therefore immaterial.”

The 11th Circuit’s recent decision in Aldana, issued five years after its decision in Mesa, provides a clear warning that insurers who chose to pursue a global settlement strategy can be liable for bad faith damages if they fail to depart from a settlement strategy that is proving unsuccessful and does not protect the insured. In Aldana, the insured caused a three-car accident that severely injured Yolanda Aldana and her four minor children as well as another driver, Jaron Ang, who was in a separate car from the Aldana family. Within two weeks of the accident, Progressive determined that its insured was liable for the crash and learned of the multiple, serious injuries to the Aldanas family. It also learned that Ang’s injuries were less serious and may be covered by workers compensation. Because there were multiple claimants whose damages likely exceeded the available insurance coverage, Progressive pursued a global settlement strategy to resolve all claims within the policy limits. This strategy involved tendering the full policy limits in exchange for a release of all claims against the insured, provided the claimants could determine among themselves how to apportion the settlement funds by a date certain. If they could not, Progressive proposed holding a global settlement conference with a mediator. In response to Progressive’s global settlement offer, the Aldanas’ attorneys notified Progressive that the Aldanas’ damages greatly exceeded its policy limits and also noted the difficulty of apportioning damages among minor children given the need for each to have a guardian ad litem. However, the Aldanas’ attorneys did not reject a global settlement. Thereafter, a settlement conference unilaterally set by Progressive’s counsel did not go forward because the Aldanas were not in a position to attend a global settlement conference.

Several months passed with little progress towards a global resolution. During this time, Progressive sent monthly letters to the Aldanas’ and Ang’s attorneys, but took no other action to settle the claims either separately or globally. The letters primarily summarized Progressive’s understanding that both attorneys were still investigating the extent of their clients’ injuries and that the Aldanas were not in a position to discuss settlement, asked if the claimants were “now in a position to discuss settlement and or attend a global settlement conference,” and reiterated the global offer of the policy limits and requested medical or billing records. Progressive received a response to only one of these letters from the Aldanas’ attorney, which advised that the policy limits “were nothing more than a drop in the bucket.” Progressive did not discuss with the insured the risk of an excess judgment or any other matters regarding the handling of the Aldanas’ and Ang’s claims.

Approximately eight months after the accident, the Aldanas family changed counsel and their new attorney filed suit against the insured that later resulted in an excess judgment. The insured then assigned to the Aldanas its rights against Progressive and the Aldanas sued Progressive in Florida state court for bad faith failure to settle. Progressive removed the case to Florida federal district court and then moved for summary judgment, principally contending that there was no reasonable opportunity to settle the Aldanas’ claims. The district court agreed, and granted Progressive’s summary judgment motion. The 11th Circuit, however, guided by Boston Old Colony, Harvey, and Farinas, reversed and concluded that the evidence was sufficient to support a jury verdict of bad faith against Progressive based on its failure to offer the full policy limits to settle the Aldanas’ claims and remanded the case for further proceedings.

In reaching its conclusion, the court analyzed Progressive’s steps, and missteps, in handling the claim. The court began by commending Progressive for quickly offering its full policy limits to settle all claims in accordance with Farinas, and noted that, consistent with its decision in Mesa, Progressive was not required to tender immediately its policy limits to the Aldanas, as suggested by the Aldanas and the insured. The court’s praise was short-lived, and the remainder of its analysis admonished Progressive for failing to act “diligently” and “with haste” on behalf of its insured to avoid an excess judgment. More specifically, the court was critical of Progressive’s failure to attempt to resolve only the Aldanas’ claims, in favor of continuing to pursue a global settlement, despite the fact that Progressive’s pursuit of a global settlement “had gone nowhere” and it had indications that the Aldanas would not settle for less than policy limits. The court also noted the opinion of the Aldanas’ bad-faith expert, who claimed Progressive should have asked the insured for permission to settle with only the Aldanas for policy limits, given that the claims by Ang were likely worth less. Notably, the insured testified at his deposition in the bad faith case that had Progressive requested permission to settle with the Aldanas alone, he would have consented, and the Aldanas also testified they would have settled their claims for the policy limits had they been offered. The court also noted the lack of evidence that Progressive advised the insured or his personal attorney of the possibility of an excess judgment and any steps he might take to avoid same, and noted testimony by the insured and his attorney that had Progressive so advised them, they would have told Progressive to offer its policy limits to settle with the Aldandas family alone.

The Aldana decision is a good reminder that Florida law requires insurers to be proactive and diligent when adjusting claims against their insureds, and particularly when the claim involve multiple, competing claimants and insufficient policy limits. Aldana also reaffirms that the duties announced in Boston Old Colony are not a mere “check list” to be mechanically followed, and that insurers should act as though their own interests are at stake by, amongst other proactive conduct, reconsidering or abandoning settlement strategies that prove unsuccessful. Along those lines, insurers should take notice if settlement negotiations are dragging on and if their settlement communications are either not drawing a response or if the response indicates a global settlement is unlikely. A further takeaway from Aldana is that while insurers may pursue global settlement strategies in good faith in certain circumstances, just like an insurer’s decision to settle select claims, the decision to pursue a global settlement must be reasonable and must be to the benefit of the insurer and the insured.

About Hillary N. Ladov and Christian A. Cavallo

Ladov is an associate attorney with the Goldberg Segalla law firm in Philadelphia and Cavallo is partner with the firm in Newark, N.J.

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